A generational approach to client engagement: A guide for financial advisors

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We live in a time of unprecedented societal change in the U.S., driven predominantly by a shift in demographics.

Millennials, the generation born between 1981 and 1997, now number 75.4 million, making up over a quarter of the U.S. population according to the U.S. Census Bureau. Before them, the largest generation in the U.S. was the 74.9 million Baby Boomers born between 1946 and 1964.1

Along with the change in U.S. demographics is what some are referring to as the largest wealth transfer in human history: an estimated $3.2 trillion in assets to be passed down to inheritors within a generation.2

These factors combined create a financial services landscape of both opportunity and challenges. Therefore, gaining a strong understanding of these generations, the events that influence them, their attitudes towards finance and the ways they prefer to communicate and learn, can be a vital part of the advisor's toolkit.

In these articles, we examine the demographic trends influencing the future of investing, the mindsets of each generation and the strategies advisors can leverage to communicate most effectively as the great wealth transfer occurs.

The world we live in now

While there is no consensus as to the exact dates for each generation in the U.S., in general they may be grouped as:

Because the client base for financial advice is changing, the CFA Institute released a report entitled, "The Future State of the Investment Profession,"3 that highlights the shifts having a revolutionary effect on the industry. At the top of their list were aging demographics and the intergenerational issues demographic changes create.

According to the research, other major shifts affecting advisors are:

Changing client profiles (demographic shifts)

Client use of technology

Technology-empowered investing

“Although demographic change happens slowly, we are living through an unprecedented period of such change, and its implications are fundamental to all actors and to the state of the financial system,” writes the report's authors.

Despite changing demographics and advances in financial technology, family and financial advisors continue to have a profound impact on investor behavior:

Advisors can play a transitionary role for their clients as they look to navigate markets and their effects on pensions, retirement strategies and income-producing assets. But amidst the new normal, premium wealth management advisors can retain their edge through relationship building and personalized, human interaction targeting the unique concerns facing each individual. This can only come from truly understanding each generation and their mindsets.

Adjusting to the new normal

As the CFA Institute poignantly stated in its Future State of the Investment Profession report, the new normal offers advisors a chance to reflect on the original pillars of the investment profession: wealth creation and savings and investment.

“The fundamental purpose of finance is to contribute to society through increases in societal wealth and well-being,” writes the report's authors.

As advisors and investment professionals, the way forward stems from those foundational principles. Successful wealth transfer will rely on providing guidance to parents and grandparents while fostering independence in young investors. Content strategies will need to deliver genuine insight to early and mid-career Americans that promote impact investing and experience building, while balancing face-to-face relationships with older generations. And perhaps, above all, advisors and investment professionals will need to embrace innovation and educate clients on how and why they should as well.

In the end, understanding generational trends can help guide advisors when paired with understanding individuals' influences and what fuels their decision-making process. Luckily for advisors, understanding individuals and their needs is where they excel.